What Is An Irrevocable Trust?
When planning their estates, many people use trusts as a means to manage and distribute property. The individual who creates the trust (the grantor) can designate his or her property to be distributed to any desired beneficiary. A trustee is appointed to manage the distribution of that property.
I am attorney Connie Yi, and I can help you determine if a trust is the right estate planning option for you. If so, I can help you choose an appropriate trust (or trusts), which may include an irrevocable trust.
To schedule a consultation at one of my offices in the San Francisco area, please call .
Irrevocable Trusts
An irrevocable trust is a type of trust that, once created, cannot be changed. However, this type of trust is flexibly drafted to account for changes in life circumstances. Conversely, a revocable trust is a type of trust that can be changed during the grantor’s lifetime.
An irrevocable trust has many of the same benefits and can help you:
- Minimize estate taxes
- Protect assets and property from creditors
- Designate property to desired beneficiaries with specific timing (a one-time payment versus installments) and stipulations (the beneficiary will receive payments upon completion of college, for example)
Although irrevocable trust offers many benefits, it also presents a lot of challenges and tax issues if the trust is not carefully drafted. Property put into this type of a trust does not go through the process of probate. Talk to an estate planning attorney to discuss what estate planning options will help you meet your specific needs and goals for the future.
Answers To Important Irrevocable Trust Considerations In California
Establishing an irrevocable trust requires careful long-term financial planning and a clear understanding of legal implications. Proper administration helps ensure your estate goals can be realized without avoidable complications. Addressing the nuances of California trust administration often raises specific operational questions. Below, I answer several common queries that clients routinely bring to my practice.
Can an irrevocable trust hold a rental property in California? What about liability and insurance?
An irrevocable trust can legally hold title to California rental real estate, which serves to potentially remove the asset from your taxable estate. However, to protect against personal injury or property claims, the trust must maintain appropriate landlord insurance policies that explicitly name both the trust and trustee as insured parties.
Additionally, properly transferring the real estate directly into the trust requires executing and recording a new deed with the local county recorder. Once transferred, any rental income generated by the property is generally subject to complex fiduciary income tax rules, which could affect your overall tax liabilities.
Can I be the trustee of my own irrevocable trust?
You may technically serve as trustee of your irrevocable trust, but doing so requires strict adherence to legal boundaries. Granting yourself broad discretionary power over distributions can trigger adverse tax consequences and could compromise key creditor protections.
Appointing an independent co-trustee or institutional trustee helps preserve these essential legal protections over time. Detailed bookkeeping must be maintained diligently to demonstrate that trust assets remain separate from personal funds.
Do I need a separate tax ID (employer identification number) for an irrevocable trust?
Most irrevocable trusts are treated as separate legal tax entities and require their own employer identification number (EIN) from the Internal Revenue Service (IRS). This unique tax identifier allows the trustee to open dedicated bank accounts and helps ensure annual fiduciary income tax returns are filed properly.
The trustee uses this exact number for all official banking and tax reporting throughout the lifetime of the trust. In certain grantor trust structures, income may potentially still be reported directly under your individual Social Security Number (SSN) instead.
Questions About The Pros and Cons Of An Irrevocable Trust? Contact Me Today.
If you are interested in learning more about setting up an irrevocable trust, please contact my law office today to schedule a consultation. I speak fluent Mandarin and Cantonese.